Moguls mix it in ce­ment con­test

Purses open as SA’s Nh­leko and Nige­ria’s Dan­gote square up for ce­ment gi­ant PPC

Step aside Conor McGre­gor and Floyd May­weather — two of Africa’s rich­est men are squar­ing up for a mighty show­down in­volv­ing bil­lions of rands.

At stake is not a golden belt, but ce­ment. Enough to sup­ply most of Africa.

South African busi­ness­man Phuthuma Nh­leko threw the first punch this week, pro­duc­ing a R6-billion cheque in a R5.75a-share “firm of­fer” to ac­quire stock in ce­ment gi­ant PPC.

Nige­rian bil­lion­aire Aliko Dan­gote hit back with an “in­dica­tive of­fer closer to the cur­rent mar­ket price of the share”. That was close to R6.35 a share on Fri­day, valu­ing the com­pany at R10.1-billion.

The face-off has PPC share­hold­ers laugh­ing all the way to the JSE.

Two of Africa’s rich­est men are fi­nally going toe-to-toe. They have been cir­cling each other for quite a while but now an in­tense cor­po­rate scrap seems in­evitable.

Aliko Dan­gote and Phuthuma Nh­leko are squar­ing up for a bid­ding war over PPC, South Africa’s big­gest ce­ment pro­ducer. This time the Nige­ria-South Africa power play will be more prof­itable than the po­lit­i­cal ri­valry of the Good­luck Jonathan-Ja­cob Zuma years.

PPC’s in­vestors are al­ready smil­ing all the way to the JSE, with the share price hav­ing risen 84% from its most re­cent low three weeks ago. It could get bet­ter still in the next few weeks as the bil­lion­aires sharpen their tools and dig deeper in their pock­ets in or­der to win the favour of the PPC share­hold­ers.

Nh­leko’s con­sor­tium this week fired the first shot, pro­duc­ing a R6-billion cheque in a R5.75 a share “firm of­fer” to ac­quire stock in PPC and to set­tle the debt owed by its smaller do­mes­tic ri­val, Afrisam.

Nh­leko’s Pham­bani Group owns 30.5% of Afrisam and has man­age­ment control through an agree­ment with the Pub­lic In­vest­ment Cor­po­ra­tion (PIC), which owns 66% of the com­pany. The com­pa­nies would com­bine their op­er­a­tions if Nh­leko has his way. It is pur­su­ing the PPC merger in concert with Cana­dian in­vestor Fair­fax Africa In­vest­ments.

Not enough

While ev­i­dently not enough, the Afrisam/ Fair­fax of­fer is a big im­prove­ment on the R4.60 a share of­fer Afrisam made in late Au­gust be­fore it aban­doned the talks. It then brought Fair­fax in to re­cap­i­talise it­self to wipe out its crip­pling R7-billion debt.

If their bid suc­ceeds, they would take the ce­ment war to Dan­gote across the con­ti­nent, with their cur­rent op­er­a­tions stretch­ing from Dar es Salaam in Tan­za­nia across the cen­tre of Africa to Kin­shasa on the At­lantic Ocean. The com­bined group would have rev­enue es­ti­mated at R16-billion. The deal would also re­duce the net debt of the merged group to un­der R6-billion.

Business Times can to­day dis­close that through Dan­gote Ce­ment, the Nige­rian bil­lion­aire has sub­mit­ted an “in­dica­tive of­fer” that would com­bine PPC’s op­er­a­tions with those of Dan­gote, cur­rently the con­ti­nent’s largest pro­ducer of ce­ment.

A source close to PPC would only say the in­dica­tive price of­fered by Dan­gote was “closer to the cur­rent mar­ket price of the share”. That was just more than R6 a share on Thurs­day, but the stock jumped to close at R6.35 a share on Fri­day, valu­ing the com­pany at R10.1-billion.

Dan­gote is of­fer­ing a share swap to merge the two com­pa­nies and list them on the JSE and the Nige­rian Stock Ex­change. The de­tail of the pro­posed merger is still be­ing worked on.

More at­trac­tive

If Dan­gote wins, PPC in­vestors will be ex­posed to a com­pany listed on at least two of Africa’s big­gest stock ex­changes and sup­ply the com­mod­ity in mar­kets stretch­ing from the At­lantic to the In­dian oceans while also dom­i­nat­ing all the mar­kets stretch­ing from the Sa­hara down to the low­est tip of the con­ti­nent.

Dan­gote op­er­ates in 10 African coun­tries, in­clud­ing through a 64% share in South Africa’s Sephaku Ce­ment, while PPC is present in nine. The op­er­a­tions over­lap in only two coun­tries — South Africa and Ethiopia. In­deed, it is PPC’s mod­ern tech­nol­ogy plants, some new plants un­der con­struc­tion, which grew ca­pac­ity 33%, that have made the Jo­han­nes­burg-based com­pany even more at­trac­tive in the past three years.

La­fargeHol­cim, one of the globe’s largest ce­ment pro­duc­ers with an­nual ca­pac­ity in ex­cess of 353 mil­lion tons, has also joined the bid­ding war through an “in­dica­tive of­fer” for PPC script, says a source.

Third time lucky

But it is Nh­leko and Dan­gote who will fight to the end. They have both tried to merge or take over PPC on nu­mer­ous oc­ca­sions. Nh­leko hopes this will be third time lucky.

Afrisam first made its in­ten­tions known in a late 2014 bid that was later aban­doned in 2015, with both firms suf­fer­ing crip­pling debt and de­pressed de­mand for their prod­ucts. PPC had got it­self into a fi­nan­cial cri­sis as it was in the mid­dle of the con­struc­tion of four plants in as many coun­tries. It had to call on in­vestors for a R4-billion rights is­sue while also hav­ing to ob­tain an emer­gency loan to keep going.

Dan­gote’s in­dica­tive of­fer is its fourth at­tempt to merge with PPC in the past 15 years. The last two at­tempts were in 2015 and 2012, and were both aban­doned be­fore ei­ther com­pany’s share­hold­ers could con­sider them as tough eco­nomic con­di­tions in both coun­tries ren­dered any prof­itable merger of the debt-laden com­pa­nies im­pos­si­ble.

The in­de­pen­dent PPC board will con­sider the Fair­fax/Afrisam bid while si­mul­ta­ne­ously con­duct­ing talks with both Dan­gote and La­fargeHol­cim be­fore giv­ing its rec­om­men­da­tion to in­vestors in early Oc­to­ber.

The Pub­lic In­vest­ment Cor­po­ra­tion will play a key role in any trans­ac­tion. It needs the con­sol­i­da­tion of Africa’s ce­ment pro­duc­ers as much as Afrisam needs the merger with PPC. The PIC’s 66% stake in strug­gling Afrisam is its sin­gle big­gest exposure, but the man­ager of the pen­sions of state em­ploy­ees is also the largest in­vestor in PPC with 15% of the shares. It also owns 2% of Nige­ria’s Dan­gote, which has R11-billion of debt against rev­enue of R14.7-billion.

Asked how it would pro­ceed, the PIC’s Deon Botha said it would only be in a po­si­tion to ex­press a view af­ter PPC ap­proaches all share­hold­ers with a pro­posal. Other in­vestors are also wait­ing for the PPC board to present them with a deal to con­sider.

Through the R4-billion Fair­fax in­vest­ment, Afrisam will re­tire all its ex­ter­nal debt while a con­ver­sion of fur­ther debt owed to its cur­rent share­hold­ers will make the en­tity debt-free. Nh­leko’s con­sor­tium hopes this, to­gether with a R2-billion ac­qui­si­tion of PPC stock, would be enough to con­vince PPC share­hold­ers to pro­ceed with a merger of South Africa’s largest ce­ment mak­ers.